by Sam Collins 08/26/08
More concerns about the future of some key financial companies resulted in a broad, light-volume sell-off yesterday. More than 95% of the stocks listed in the S&P 500 (SPX) closed at a loss, and all 30 of the Dow Jones Industrial Average stocks closed lower.
Credit Suisse lowered its third-quarter profit estimate for Dow-30 member American International Group (AIG) and the stock fell 5.5% to a new low. Huntington Bancshares (HBAN) fell 6.8%, and Lehman Bros. (LEH) fell 6.7% -- the latter following a warning by South Korean regulators to Korea Development Bank to be cautious before making an acquisition overseas. Last week, the Korean bank showed interest in purchasing Lehman Bros.
The National Association of Realtors' existing home sales report for July showed that existing home sales rose but prices fell. The inventory of unsold homes rose to 11.2 months, the highest level since 1999.
At the close, the Dow Jones Industrial Average (DJI) fell 242 points to 11,386. The S&P 500 (SPX) lost 25 points to 1,267 and the Nasdaq (NASD) lost 49 points and closed at 2,366.
The New York Stock Exchange traded just 865 million shares. Nearly 593 million shares traded on the Nasdaq, and on both exchanges' advancers topped decliners by more than 3-to-1.
Crude oil (October contract) rose 52 cents, closing at $115 a barrel, and the Amex Energy SPDR (XLE) fell 97 cents to $73.65.
The December gold contract fell $7.80 to $825.70; the PHLX Gold/Silver Index (XAU) fell $184 and closed at $146.99.
What the Markets Are Saying
Yesterday, the bear reasserted itself by taking away all of Friday's gains, and then some.
But the mid-point of yesterday's range fell almost exactly at the conjunction of the Dow's (DJI) 20- and 50-day moving averages and formed a small pennant. With this development, it is difficult to put much confidence in the charts -- especially with such puny volume.
Bearish signals were generated by the Moving Average Convergence/Divergence (MACD) indicator for the Dow Industrials (DJI), the S&P 500 (SPX) and the New York Stock Exchange Composite Index (NYA).
MACD is an internal indicator developed by the well-known market technician Gerald Appel and has stood the test of time. It was the MACD that led the other indices in issuing a major bearish signal on May 7 which led to a double-top and a new market low on July 15.
But with such low volume and high volatility, it is difficult to evaluate the significance of individual technical signals. For now, however, it is prudent to continue on the defensive until something of significance shakes us from that position.
Today's Trading Landscape
Earnings to be reported include: American Eagle Outfitters (AEO), Applied Signal Technology (APSG), Bank of Montreal (BMO), Bank of Nova Scotia (BNS), Big Lots (BIG), Borders Group (BGP), Chico's FAS (CHS), China Life Insurance Co Ltd (LFC) and CRH plc (CRH).
Daktronics (DAKT), Dycom Industries (DY), GT Solar Int'l (SOLR), Hain Celestial Group (HAIN), J. Crew Group (JCG), LTX Corp (LTXX), Rio Tinto plc (RTP), Smithfield Foods (SFD), Streamline Health Solutions (STRM), Thornburg Mortgage (TMA), Tuesday Morning Corp (TUES) and Versant (VSNT).
Several economic reports are due today: International Council of Shopping Centers Chain Store Sales Index for Aug. 23, the Redbook Retail Sales Index for Aug. 23, July new home sales, the August Conference Board Consumer Confidence report, the August Richmond Fed Manufacturing Index, and the ABC/Washington Post Consumer Confidence for Aug. 24. The notes from last month's Federal Open Market Committee meeting will also be released.
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FAST is now consolidating and recently flashed a buy signal from our internal indicator.
Options Expiration Adds Volatility
The opening looks to be higher but today is options expiration day, and anything could happen.
Chances are high stocks will sell off further, but be alert for a dead-cat bounce after such a dramatic breakdown.
Traders and longer-term investors should sell any new positions at the first opportunity and short ETFs on a temporary recovery in the market.
CAT, the blue-chip of its industry, is the first to attract attention when it's time to dress up a portfolio.
